Transparency is key for marketers using location-based micro-marketing

Utpal DholakiaProfessor of Management

Marketers have recently fallen in love with the Apple’s iBeacon technology, which extends location services in its iOS. iBeacon is being used in Major League Baseball, the Coachella Music Festival and by a number of companies to hyper-serve customers based on location. The technology uses Bluetooth to track a customer’s movement through stores and shops and events, relaying information about shoppers’ interests and allowing marketers to not only gather information, but also send consumers promotional items based on their time in the aisles.

Previously, the extended geotracking service only worked when the customer’s phone was actively running the marketer’s app. Recently Apple made a change in its operating system that allows iBeacon to send information to marketers even when their specific app isn’t running. It’s a boon for marketers, but a concern for privacy advocates.

Professor Utpal Dholakia shares some of his thoughts on how the iBeacon may influence people’s attitudes and behavior and what it means potentially for marketers.

Based on your research and consumer sentiment, how do you think most users will react to being tracked in this manner?

My sense is that there will be stark differences in how different customer segments react. In a broad sense, the iBeacon technology is not that different from what apps like Foursquare and even Facebook Places do already. So the 45 million users of Foursquare plus users of other geotracking apps should have no problem. On the other hand, a significant number of users are likely to be suspicious and skeptical to begin with.

Is there a tradeoff in the perception of security/privacy vs. convenience and marketers being able to super-serve users through tracking behavior?

I think the trade-off is between privacy and the tangible benefits associated with giving it up. In many of the examples of iBeacon’s proposed uses, marketers will provide compelling incentives to consumers to allow them to be tracked. To the extent that consumers get something valuable in return, my prediction is that they will embrace iBeacon. Of course, a lot depends on how Apple and its marketing partners explain this technology to consumers. Transparency is crucial!

Are there similar examples that you’ve seen in the past where technology may be seen as invasive but eventually the loss of privacy grows more acceptable because of the utility afforded to users?

In addition to Foursquare, other examples include Snapchat with about 30 million active users, Gmail with 400+ million users, and in the off-line world, point-of-sale coupons, which are used widely in supermarkets and grocery stores throughout the country. In each case, the consumer gives up a certain amount of privacy and receives something of value in return.

What impact will this have, potentially, on the way brands market?

iBeacons is just the latest move towards a “micro-marketing” trend, which has been building in marketing for the past decade. In the early 2000s, we called it “one-to-one marketing.” These days we use terms like “micro-targeting” and “micro-segmenting.” The basic idea is to move away from marketing to everyone the same way and designing unique marketing programs for each customer based on what the marketer knows about their preferences and behaviors.

Dr. Utpal Dholakia is Professor of Management at the Jesse H. Jones Graduate School of Business, Rice University in Houston, Texas. His research interests lie in studying motivational psychology of consumers and online marketing issues such as virtual communities and online auctions. He also studies relational aspects of consumer behavior.